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Should the U.S. Ban Credit Card Surcharges?

In the ongoing love-hate relationship between merchants and credit card companies, the UK is in the midst of outlawing surcharges on credit cards. Merchants love credit cards because cards are safer than cash-handling, typically bring a higher spend at the point of sale, and provide quicker servicing. Merchants hate cards because they require interchange fees or merchant discounts which vary by market. A way to recoup these fees is to add a surcharge.

• New rules from the British government will soon prohibit retailers from charging customers extra for paying for their purchase with a credit card.

• The UK rule stems from an EU directive set to take effect on January 13, 2018, and, according to the UK Treasury Ministry, British consumers could save a sizable portion of the millions of pounds spent annually on card surcharges.

Forty US States allow for surcharging and ten do not (California, New York, Kansas, Florida, Maine, Connecticut, Texas, Oklahoma, Massachusetts, and Colorado).

• Merchants in the other states are generally allowed to pass on a surcharge that is equal to their costs associated with accepting the card (up to 4 percent).

• Surcharges on debit cards are already banned throughout the US via an amendment to the Dodd-Frank legislation.

I personally love London; on my first trip there many years ago, I remember being told that I was in the newer part of town rebuilt after the Great Fire, which I assumed meant WWII. The tour guide corrected me and said that he was referring to the Great Fire of 1666. This makes Mr. Barclay’s comment even more interesting.

• Economic Secretary to the Treasury Stephen Barclay said that such charges “have no place in a modern Britain.”

The love-hate relationship will certainly continue. You will probably see it reflected in consumer prices, one way or another.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group